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J&J's Public Image in the Red

Suing a charity? What was it thinking?

Johnson & Johnson's (NYSE:JNJ) lawsuit against the American Red Cross was a no-win situation for the perennial American health-care company.

Let me back up a moment. J&J had sued the American Red Cross for licensing its red cross symbol -- you know, the red one on the white background, the one the charity organization has used for over 100 years -- to a few companies in exchange for a royalty payment on sales of those companies' health-care products. The claim was trademark infringement.

That may sound crazy to you, but trademarks are a big deal to companies and are vigorously defended. If the words or symbol become generic enough, such as "Kleenex" used as a substitute for facial tissue, then the company holding the trademark, e.g. Kimberly-Clark(NYSE:KMB), can lose the rights associated with it. (Note that Kimberly-Clark still holds that particular trademark.)

Back to our story.

Yesterday's announcement that the judge was throwing out much of the case might have been the best outcome for Johnson & Johnson. The company was really between a rock and a hard place here.

On the one hand, trademark infringement -- both organizations use a red cross on a white background -- is a serious issue and could cost Johnson & Johnson sales. Its products compete against the American Red Cross-licensed products on shelves of retailers such as Wal-Mart(NYSE:WMT), Target(NYSE:TGT), and CVS Caremark(NYSE:CVS).

On the other hand, how could it sue a beloved charity and not end up with a permanent scar to its public image?

The judge threw out much of the suit against the American Red Cross, saying the charity is free to use and license the symbol it's been using for over a century. After all, both various Geneva Conventions and the U.S. Congress had authorized it, the judge noted. The only part of the suit remaining is J&J's claim that the charity interfered with its contracts with privately held companies, Water-Jel and First Aid Only. Four companies that have licensing agreements with the charity are also countersuing Johnson & Johnson.

Really, this may have been the best outcome for Johnson & Johnson. It got to show its legal muscle to the charity, which might cause the latter to tread lightly in future licensing deals. But J&J didn't actually win anything, so it doesn't come across looking as much a bully as it would if it had won.

Perhaps that was the company's strategy all along?

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